Agro Money

Priority Sector Lending

As per the existing regulatory framework, banks have priority sector lending (PSL) targets (the Reserve Bank of India mandates that banks must lend a certain percentage of funds to certain sectors: 40% of ANBC (Adjusted Net Bank Credit) for domestic banks and 32% of ANBC for foreign scheduled commercial banks). Within the overall figure, sub-targets are set for banks: for domestic banks, 18% agricultural loans (of which 13.5% is direct-agri) plus 10% lending to weaker sections, for domestic banks; for foreign banks, the requirement of specific relevance to this context is the 10% sub-target for micro, small and medium enterprises. Any shortfall in achieving these targets needs to be compensated by placing funds with NABARD under RIDF scheme at very nominal rate of interest.

Priority Sector includes those sectors that impact large sections of the population, the weaker sections and the sectors which are employment-intensive such as agriculture, and tiny and small enterprises.
Presently, the broad categories of priority sector for all scheduled commercial banks are as under:

CATEGORIES OF PRIORITY SECTOR

(i) Agriculture (Direct and Indirect finance): Direct finance to agriculture includes short, medium and long term loans given for agriculture and allied activities (dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit and to others (such as corporates, partnership firms and institutions) for taking up agriculture/allied activities.

(ii) Small Enterprises (Direct and Indirect Finance): Direct finance to small enterprises includes all loans given to micro and small (manufacturing) enterprises engaged in manufacture/ production, processing or preservation of goods, and micro and small (service) enterprises engaged in providing or rendering of services, and whose investment in plant and machinery and equipment (original cost excluding land and building and such items as mentioned therein). The micro and small (service) enterprises includes small road & water transport operators, small business, professional & self-employed persons, and all other service enterprises.

Indirect finance to small enterprises includes finance to any person providing inputs to or marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector.

(iii) Retail Trade: includes retail traders/private retail traders dealing in essential commodities (fair price shops), and consumer co-operative stores.

(iv) Micro Credit: Provision of credit and other financial services and products of very small amounts not exceeding Rs. 50,000 per borrower, either directly or indirectly through a SHG/JLG mechanism or to NBFC/MFI for on-lending up to Rs. 50,000 per borrower, will constitute micro credit.

(v) Education loans: Education loans include loans and advances granted to only individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those granted to institutions;

(vi) Housing loans: Loans up to Rs. 20 lakh to individuals for purchase/construction of dwelling unit per family, (excluding loans granted by banks to their own employees) and loans given for repairs to the damaged dwelling units of families up to Rs. 1 lakh in rural and semi-urban areas and up to Rs. 2 lakh in urban and metropolitan areas.